The Nasdaq Composite index closed its first week of 2008 with a poor year-to-date return of -5.6% to bring the index down to a 13-week low, closing on Friday at 2504.65. This is the worst-ever performance of the index as of the first weekly close in its history. The bears are in full control, with the index below all the averages we track. Is there any solace for the bulls to be found in history?
Q: How has the Nasdaq Composite Index performed in the past when it has seen a year-to-date performance, as of the first Friday of a new year, of -1.25% or worse?
A: According to the seven previous occurrences of this event, EventEdge indicates that the Nasdaq Composite has shown a strong bullish edge that peaks 21 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Friday, Jan. 4 2008) is Tuesday, Feb. 5 2008. The Nasdaq Composite rallies in 86% of the cases (6 of 7) by an average of 9.2% relative to the close on the event date. The average of the one decline is 0.1%. The overall return of the seven cases is 7.9%, which, based on the close on the event date (2504.65), provides a target price of 2702.52.
Seven historical occurrences is not a lot to hang your hat on, but we thought the strength of the edge seemed to warrant a mention. Using the Student's t-test, which takes into account the number of occurrences; we have a t-score of 3.3, which provides us a mean return at the 90% confidence interval for that holding period of ~4%. This assumes, as it always does, that the characteristics of the distribution of returns after this event are stable.
If you would like to see more details of this historical edge, go to www.markethistory.com
Gibbons Burke is editor of MarketHistory.com.
